Monthly Archives: May 2012

Opportunity in Chaos

A few days ago I received another installment of the laments of a poor economy and how it affects ones ability to live the life they would like. I’m not sure any more if it’s just the economy’s effect on people or if there’s just a tendency for everyone to roll over and play dead about their options. Everyone faces higher prices and lower pay and what seems like fewer options. As a country or even a local economy, that’s true. As an individual, it does not have to be true at all. The perception is that however the country is going, that’s how the individuals go as well.

In basic accounting, or bookkeeping, or budgeting, there is one over-riding principle about a balanced budget. When the budget is out of balance there are two ways to deal with it. One is cut expenses, the other is increase income. (or both) I had to listen to how all of the problems of the country (or even world) were causing us to have to cut back here and do without there and just lower our expectations to the point where we could even survive the state we are in right now. Sorry, that’s one option, but it’s not the only option. I almost think the “doom and gloom” group is actually enjoying this bad state of affairs because it is something exciting to wring their hands over and say “I told you so!”

I’ve decided that whatever the economy in general takes away, I am going to replace twofold or even threefold. If it cost me $100 more per month in gas, I’m determined to increase income by $200 per month. If groceries go up by $50 per month, I’ll add $100 per month in income to offset that. If the dollar’s purchasing power looses 10% I’m going to increase income 20%.  I can’t do that by working more hours or getting a better job. I can only do that by adding income producing assets, or growing my business.

If your tendency has been to reign in your spending and cut back on your life in order to cope with the new economy, it will work for a while. But there may come a time when there is no more to cut and no more to give up and you may look back and say to yourself, “Why didn’t I learn to increase my income instead?”

Learning a new skill isn’t that hard and real estate investing is a skill that can change the complexion of life forever. Both for you and generations to come. To me, this economy is telling us to prepare for living life at a lower standard that we’ve ever known before or prepare to live life at a greater standard than we’ve ever know before. I believe the majority will choose to be passive and reduce their standard of living. Will you be one of the minority who believes that the best defence is a strong offense?

Post a comment here if you want to link up with people who are moving forward and are finding opportunity in the chaos!

Knowing Your Assets From A Hole In Your Wallet

Last week I had an encounter that left me scratching my head in wonder. Since this blog has to do with the process, mechanics, philosophy and reasons for real estate investing, everything in it has to do with helping build an understanding of those principles. These principles have created a certain amount of financial freedom for us and we enjoy teaching it and training it to whoever is willing to learn. The most powerful and profound concept available to us is a simple one, I thought, yet this week I wonder if it really sinks in.

The concept is that of “assets and liabilities”. In order to understand wealth building, you must understand assets and liabilities and how they affect income. Banks allow anything that has value to be listed as an asset. In a way that is true, BUT…..just because it has value DOES NOT mean you should define it as an asset. I believe this one subtle thought is the problem with most financial struggles. We’ve been taught to believe that all assets with value add to the value of our financial statement thus adding to our wealth. NO….. That only creates a situation where the more assets you have, the harder you have to work to maintain them. The more you have, the closer you are to red-lining your finances all the time. Lets back up to the definition of “assets and liabilities”.

The definition that must be adopted is “assets put money in your pocket whether you work or not, liabilities take money out of you pocket whether you work or not.” Most people spend an entire life accumulating liabilities, very few spend any time accumulating assets. The incredible part is one is no more difficult than the other and doesn’t take any more time than the other.

Understanding this is all that’s necessary to judge whether an investment is an asset or a liability. One person who I really thought understood this just spent a half hour telling me how good of an investment they just made on a property that was not an investment, (it was a speculation at best) it had zero income and was going to add about $400 to their expense column every month. And… There was a very narrow window of potential success with it and a very good chance that it will eventually have to be sold at a loss.  SO, instead of creating more freedom, they created more financial bondage for themselves. (and were excited about it) Oh well!

Assets create wealth little bits and pieces at a time, for every $100 worth of expenses there are every month, an asset (or group of assets) need to offset that $100. When $400 worth of expenses are added to an income/expense statement that means $400 more worth of “asset income” must also be added. (OR, of course, you could just get a second or third job)

The biggest problem is that when liabilities and expenses are supported by earned income, any reduction of that source of income diminishes the ability to support the liabilities. From 2007 to now, this concept is PAINFULLY clear. Anything that takes money out of your pocket whether you work or not, can overtake your ability to keep it going when times get tough. When you understand that putting income producing assets into your portfolio rather than income consuming liabilities, you will easily be on your way to financial freedom.

We simply quit speculating on things that had value but didn’t produce income. We adopted the “asset/liability’ model described above and started acquiring assets that produced income and had intrinsic value.

It’s not rocket science! We teach it, you can learn more at


Your Life Is Your Business!

Its Friday morning and I’ve been sitting here with a cup of coffee thinking about an interesting paradox that relates to ones choice of pursuing the investing business. I think it drives home the notion that the business has very little to do with the actual mechanics of the process and much more to do with the motivational reasons why you do something. A person will choose whatever path they “believe” will take them to their desired destination. (sometimes, even if that path doesn’t go to their desired destination) If they are unable to choose their own path, they will take whatever seems to be their best option. Years ago I remember thinking that the ideal life is one where I could live free of the normal 9-5 routine and be independent and self-sufficient.  I reasoned there were two ways of doing that. One was to make enough money to achieve that goal (don’t tell me you haven’t thought of that) The other was to learn to do everything with nothing. After spending 3 months trying to become wealthy, I gave up on that and chose to pursue the “do everything with nothing” approach. I even subscribed to “The Mother Earth News”. Some of you will remember that publication where you learned to do everything with nothing. (build a house using hay bales and empty milk cartons, convert your truck to run on water and compost, raise a goat to do away with your trash, mow your yard and put milk in the fridge) that is being a little bit sarcastic….but not much.  Anyway, that was the two opposing approaches to my view of what it might look like to achieve independence.

Looking back on that, it represents the only two real game plans there are for financially achieving a goal, whatever that goal is. The first represents “increasing your income” the second represents ” decreasing your expenses”. No matter what your goal is, no matter what your resources are, no matter what your talents and abilities are, if you are actively pursuing anything you will be limited by how well you can create income or reduce expenses. Even if you have a job, you are still running a business. The business of achieving your life goals and arriving at your desired destination. (assuming that one actually has life goals, desires and destinations) I would go as far as to say that whatever a person does to make sure the bills are paid every month is potentially counter-productive to achievement of their life goals and dreams. It may be that way, not because it’s not important or relevent, but because it gives a false sense that it’s actually contributing to the life goal or dream. It may be doing nothing more than filling the gap between the first and the end of the month. (with a little left over for a summer vacation) That is perfectly OK as long as its seen for what it is. It’s the base line for building upon. From that point, the question is……..What will it take to achieve your dreams and goals and how do you begin to increase income and reduce expenses to get there? (One important note; You can only do so much by decreasing expenses, sooner or later you need to create income streams that are self perpetuating)

Some will never, and I mean NEVER, move beyond filling the gap between the 1st and the 31st of the months. (or like some people I know, between the 1st and the 23rd of the month) If you are that type of person, you are not the type of person who would be reading this post anyway. If you happen to be reading this, I assume you are interested in achieving something beyond “getting by” I encourage you to view your current job or means of income as the minimum base line for survival and start to look at your life dream or goal as your business.

Heres my paradox. I find myself enjoying an independent lifestyle and its been the result of a combination of building an investing business and “doing something with nothing”. We have put together real estate deals out of thin air sometimes and other times used significant resources. The cabin project we are involved in has been a “boot strap business” in its development and operation but at the same time we are enjoying the “cabin/resort” life that many only dream of. We own properties much larger, newer and nicer than where we live, but are living exactly the dream we’ve dreamed for years.

I actually chuckled out loud when I first though of this. (I know, I’m strange!) You can see our cabin project at if you’re interested. The main thing though is to be honest with yourself and really hold yourself accountable to your dreams.

Remember, a dream will remain a dream and will never become a reality until you work out a game plan and act on it.

The Myth of Working Hard

As promised, this is the follow-up to the teaser post on Facebook last week. It said “Pursue a career, you end up with a career. Pursue Freedom, you end up with Freedom.” Almost everyone I know works hard for a living and is doing their best to do their job the best they can. We describe this as a good “work ethic”. The myth that we seem to always somehow belive is that if you work hard enough and honest enough and long enough, you will be a success.  And that is admirable and to a degree, true. You will become successful at whatever you do well. That doesn’t mean you will become successful  at what you truly want to accomplish in your life. A  good work ethic with a bad road map, or game plan, may leave you successful in something you have no real interest in.

I read facebook posts every day that relate to people looking for a job or looking for a better job or dis-satisfied with their current job or wishing it was Friday and so on.  Maybe this is just a lot of facebook filler posted just to have something to post, but I know enough of them to know there is a lot of truth behind it. I am almost certain that one thing is absolutely true..and I hope each reader is honest enough with themselves to admit it…..If it weren’t for the paycheck, nearly everyone would be doing something different with their lives that they enjoyed more and gave them a greater sense of purpose. So, by necessity and responsibility, we still must secure our livelihood before we pursue our “ideal” lifestyle. I don’t think anyone would argue with that.

I read a book years ago called “Working Smart” It made a lot of sense but it mostly had to do with maximizing your time. That book haunted me for years because no matter how well I maximized my time, it only made me more productive in doing things I really wasn’t very interested in. I was on track to continually get better jobs, and I did get jobs and promotions.  In a flash of inspiration one day, I figured out that I needed to get good at pursuing what I wanted to actually acomplish…..freedom to live and do the things I was interested in. What a novel idea. So with one subtle shift in mindset. I switched priorities from “earning a paycheck first and dreaming of a freedom lifestyle second” to “Pursuing a freedom lifestyle first and earning a paycheck second”

You may not think there’s any difference, but there is a huge difference. You become successful at what you focus on. Once you’ve found the thing you want to accomplish in life, then the “myth” of working hard is no longer a myth. Working hard for the sake of working hard is not very rewarding.